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Critical Evidence on Comparative Advantage? North-North Trade in a Multilateral World

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  • Davis, Donald R

Abstract

There are two principal theories of why countries trade: comparative advantage and increasing returns to scale. Which is most important in practice? The large volume of intra-OECD trade is frequently cited as critical evidence on this question. It is argued that comparative advantage, unlike scale economies, is incapable of accounting for the large volume of trade between seemingly similar economies. This is a theoretical claim. In this paper, the author shows that it is possible to give an account of this trade based on comparative advantage. The elements that may give rise to a large volume of North-North trade are traced to identifiable features of technology and endowments. Copyright 1997 by the University of Chicago.

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  • Davis, Donald R, 1997. "Critical Evidence on Comparative Advantage? North-North Trade in a Multilateral World," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1051-1060, October.
    • Handle: RePEc:ucp:jpolec:v:105:y:1997:i:5:p:1051-60
    DOI: 10.1086/262104
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    References listed on IDEAS

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    1. Markusen, James R & Wigle, Randall M, 1990. "Explaining the Volume of North-South Trade," Economic Journal, Royal Economic Society, vol. 100(403), pages 1206-1215, December.
    2. Gene M. Grossman (ed.), 1992. "Imperfect Competition and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570939, December.
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    Cited by:

    1. Trionfetti, Federico, 1999. "On the home market effect: theory and empirical evidence," LSE Research Online Documents on Economics 20215, London School of Economics and Political Science, LSE Library.
    2. Bernstein, Jeffrey R. & Weinstein, David E., 2002. "Do endowments predict the location of production?: Evidence from national and international data," Journal of International Economics, Elsevier, vol. 56(1), pages 55-76, January.
    3. Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
    4. Donald R. Davis & David E. Weinstein, 2001. "An Account of Global Factor Trade," American Economic Review, American Economic Association, vol. 91(5), pages 1423-1453, December.
    5. Zissimos, Ben, 2009. "Optimum tariffs and retaliation: How country numbers matter," Journal of International Economics, Elsevier, vol. 78(2), pages 276-286, July.
    6. Davis, Donald R. & Weinstein, David E., 1999. "Economic geography and regional production structure: An empirical investigation," European Economic Review, Elsevier, vol. 43(2), pages 379-407, February.
    7. Afontsev Serguey, 2002. "Endogenous Tariff Protection and the Level of Trade Distortions in Russia," EERC Working Paper Series 01-07e, EERC Research Network, Russia and CIS.
    8. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March.
    9. Ramezzana, Paolo, 2000. "Per capita income demand for variety, and international trade: Linder reconsidered," LSE Research Online Documents on Economics 20184, London School of Economics and Political Science, LSE Library.
    10. Elhanan Helpman, 1999. "The Structure of Foreign Trade," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 121-144, Spring.
    11. E. Young Song, 2011. "On Gravity, Specialization and Intra‐industry Trade," Review of International Economics, Wiley Blackwell, vol. 19(3), pages 494-508, August.
    12. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography and Comparative Advantage: An Empirical Assessment," Harvard Institute of Economic Research Working Papers 1850, Harvard - Institute of Economic Research.
    13. P Ramezzana, 2000. "Per Capita Income Demand for Variety, and International Trade: Linder Reconsidered," CEP Discussion Papers dp0460, Centre for Economic Performance, LSE.
    14. Daryna Grechyna, 2021. "Trade openness and political distortions," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 644-663, November.
    15. Rodrigo García Arancibia, 2009. "Distribución y Movilidad de la Especialización Argentina en el Comercio Mundial de Agroalimentos: Un Estudio Dinámico," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 47(1), pages 11-45, Junio.
    16. Ragoobur, Verena Tandrayen & Tengur, Neha Devi & Seewooruttun, Bhooteshta, 2021. "South-South Trade: The Potential for Mauritius," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 46(3), pages 45-65, September.
    17. Christian Nsiah & Chen Wu & Walter Mayer, 2012. "An analysis of US State’s export performance in the Asian Market," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 49(2), pages 533-550, October.
    18. Donald R. Davis & David E. Weinstein, 2001. "Do Factor Endowments Matter for North-North Trade?," NBER Working Papers 8516, National Bureau of Economic Research, Inc.
    19. Jon Haveman & David Hummels, 2004. "Alternative hypotheses and the volume of trade: the gravity equation and the extent of specialization," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 199-218, February.
    20. Debaere, Peter, 2005. "Monopolistic competition and trade, revisited: testing the model without testing for gravity," Journal of International Economics, Elsevier, vol. 66(1), pages 249-266, May.
    21. Davis, Donald R. & Weinstein, David E., 2003. "Why countries trade: Insights from firm-level data," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 432-447, December.

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